March 1, 2010
SEC's new "alternative uptick rule"
restricts short sales
The SEC adopted the alternative
uptick rule (Rule 201) on
Feb. 24, 2010, to place restrictions on
short selling when a stock is significantly declining in price. This
rule is intended to ensure market stability and restore investor
confidence.
The alternative uptick rule (Rule 201) restricts short selling only
when a stock has triggered a circuit breaker by experiencing a price
decline of at least 10 percent in one day. At that point, short
selling would be permitted if the price of the security is above the
current national best bid.
The features of Rule 201 include:
- Short sale-related circuit
breaker: The circuit breaker would be triggered for a
security when the price declines by 10 percent or more from the
prior day’s closing price.
- Duration of price test
restriction: Once the circuit breaker has been triggered,
the alternative uptick rule would apply to short sale orders in
that security for the remainder of the day and the following
day.
- Securities covered by price
test restriction: The rule generally applies to all equity
securities that are listed on a national securities exchange,
whether traded on an exchange or in the over-the-counter market.
- Implementation: The rule
requires trading centers to establish, maintain, and enforce
written policies and procedures that are reasonably designed to
prevent the execution or display of a prohibited short sale.
The rule will become effective 60
days after the date of publication of the final rule release in the Federal
Register, and then trading markets and market participants will have six months to
comply with the requirements.
For more information
Cynthia Keveney
Financial
Services
Grant Thornton LLP
T 212.624.5495
E
Cynthia.Keveney@gt.com
Visit
www.GrantThornton.com.
Content in this publication is not
intended to answer specific questions or suggest suitability of
action in a particular case. For additional information on the
issues discussed, consult a Grant Thornton client service partner. |
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